Airline revenues suffer

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The following headline, "Air marshal aimed gun in Delta cabin," came across in late August. A year ago, it would have been a shock. These days the shock value, sadly, is all but gone.

From the National Guard in airports to having to go barefoot to clear security, flying has been transformed. So have the major airlines' bottom lines.

But it is not only lingering fear from Sept. 11 that has made life excruciating for major airlines as they post losses, lay off people and ponder bankruptcy, industry observers say.


"The primary thing that has affected the airlines has been the downturn in the economy. And as long as the economy is down in the dumps, the stock market is down and business people are not traveling worldwide as much as they have before, the major airlines are just not going to do very well," said Frank Werner, Fordham University associate professor of finance, who monitors the industry.

UAL Corp.'s United has hired bankruptcy attorneys, US Airways has filed for protection and the other majors have posted losses all principally due to the slip in high-margin business travel. After a post-9/11 decline, there is evidence volume has recovered-Bureau of Transportation Statistics figures comparing domestic air travel from January-May of 2001 to this year show a passenger decline of only 10%-but revenues haven't.

As people and businesses chafe at high prices, the beneficiaries are the low-cost airlines. For years, Southwest was profitable as a low-cost carrier and continues to be, albeit at a lesser level. AirTran Airways has added routes and planes since Sept. 11. And JetBlue Airways is emerging as a model of how to please customers and investors.

Those three airlines don't have the entrenched high labor and operational costs of the majors. "We're a low-cost operator and we are fanatical about costs," said Tad Hutcheson, AirTran's director of marketing. "We watch our costs, so we can afford to charge less ... and still make money."

A typical ad is a retail one Southwest ran Sept. 3: "Last-Minute Business Trips Are Affordable Again." And the majors were forced to respond. When JetBlue inaugurated service between New York and Long Beach, Calif., American tried to entice customers with extra frequent-flier miles.

If major carriers can weather the current conditions, they still hold advantages in more extensive route structures, overseas flights, the privacy of first class and appealing frequent-flier programs. "The discount carriers like the JetBlues and the Southwests and so on are providing a certain service," Mr. Werner said, "but they're not providing the entire range of service that the market's going to want. What they're doing is offering a service that happens to be where the demand is right now."

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